Gold hit a 12-week high this morning, peeking above $1,240 in early morning trading. Silver is consolidating after yesterday’s huge advances that saw the white metal finally cross above $17/oz for the first time since late October. The disappointing retail sales report for December finally drove the dollar lower, which also dragged all three U.S. stock indices down about 1% in the red. Crude oil did edge slightly higher, while Treasury yields continued to shrink as investors search for somewhere safe to put their money.
Yesterday in the Markets
Gold continued to put together a modest winning streak on Tuesday, adding about $3 for its third consecutive trading day in the green. Silver zoomed more than 50 cents higher, a hefty 3% gain. U.S. stocks shot much higher early on Tuesday, but took a turn for the worse on news that Germany had balanced its budget for the first time in almost 50 years, giving the austerity-driven Germans even more leverage in blocking QE measures by the European Central Bank. Fears that Germany will put a damper on possible stimulus by the ECB, and even on Greece’s future with the currency union, sent U.S. stocks tumbling into the red by the closing bell.
Factors Affecting Gold Today
Germany’s insistence upon austerity rather than stimulus for the Eurozone was dealt a blow today, however, as an advisor to the European Court of Justice said today that the ECB’s planned purchases of struggling European countries’ sovereign debt is legally sound, hurting Germany’s chances of challenging the stimulus policy on legal principles. This will probably give the ECB the green light to move forward with its QE package, which will certainly be watched at the central bank’s next policy meeting on January 22. The euro continues to fall, perhaps approaching purchasing parity with the USD.
The dollar finally eased this morning, being dragged down 0.55% by the unexpected plunge in retail sales. The report showed a 0.9% drop in December, far below analysts’ consensus prediction of just a 0.1% decline. This comes after retail numbers were revised downward for November. The surprise is that retail sales would be sharply lower even with the fall in oil prices, which was expected to drive more consumer spending, especially during the holiday shopping season. Stocks responded by falling further, while government bonds rose yet again.
The bull market in equities seems to be reaching its end. The Nasdaq and S&P 500 have been struggling to advance, while the Dow Jones has been difficult to predict as of late. Watch for volatility to rise with the lack of liquidity on the stock exchanges; for reference, the Dow undulated between a whopping 424-point spread during trading on Tuesday. Treasuries–and government bonds around the world, in fact–have been rising without end. The 30-year bond yield has fallen to an all-time low of 2.39%, showing the biggest demand for the 30-year Treasury in 2-and-1/2 years. Meanwhile, the 10-year note continues to see strong demand, pushing yields all the way down to 1.82%. While funds are not quite as crowded into U.S. sovereign debt as they are in Europe, where Germany’s bund yields are negative out to five years, for example, bonds are still expensive and yields are low; with this being the case, there’s really nowhere else for safe haven demand to go than into gold, silver, and platinum. With the World Bank cutting its global economic forecast for 2015, precious metals could be the beneficiary of uncertain markets.
The EIA Petroleum Status Report will be closely watched when announced this morning at 10:30 am EST. If inventories reveal a robust supply of oil in the U.S., this should drive crude prices even lower.
Tomorrow has a move market-moving sets of data coming out, with the producer price index for final demand (PPI-FD) set to be released along with weekly jobless claims. Investors will be watching the Empire State manufacturing survey, which gives a gauge of manufacturing levels in New York state. The Philadelphia Fed Survey will also provide an overview of business conditions and industrial activity for January.